Unless you were out of the country or living in a monastery over the last month, you are probably aware that small business was the big winner in this year’s budget. But what does this mean for YOUR small business? Let’s take a look.
IS MY BUSINESS SMALL?
Most of the perks in this year’s budget are for “small business “ only. So, the first thing to get straight is whether or not your business qualifies as “small”.
The answer relates purely to your annual turnover – which must be less than $2million. It doesn’t matter whether you are operating as a sole trader, partnership, company or trust. If your revenue is less than $2million per year you are officially considered a “small business entity”.
IS THIS THE LAW?
Not yet. The budget still needs to pass through parliament, so don’t count your pennies too soon. We are fairly confident that most of this will get past even this difficult parliament, but exercise caution in making decisions based on the budget just yet.
WHAT ARE THE GOODIES?
Every small business is going to receive tax cuts starting from 1 July 2015.
If your small business is incorporated then your company tax rate will be reduced from 30% to 28.5%. So that means if you earned $20,000 taxable income last year your tax bill will go from $6,000 to $5,700, a saving of $300.
But wait, there’s more! The government has decided to leave the franking credits at 30%. So using our example above, you will receive a tax credit of $6,000 (even though you only paid $5,700). So the full amount of the tax cut goes directly into the business owner’s pocket.
If your small business operates as a sole trader, partnership or trust then you will receive a 5% discount on the tax you pay, capped at $1,000. This is paid out in the form of a tax credit. So, if you currently pay $16,000 in tax, you will get an $800 tax credit.
This is the sweetener that everyone is talking about, and the one the government hopes will get you in the shops and spending.
The first thing to note is that unusually this change takes effect immediately, which means, you can take advantage THIS FISCAL YEAR. It’s currently slated to run until the end of June 2017.
All small businesses are eligible for an immediate tax deduction for any individual asset costing less than $20,000. In the past this applied to assets that cost less than $1,000.
So let’s say you bought an $18,000 vehicle for your business, in the past you would have been able to depreciate at a 15% rate in the first year – meaning a deduction of $2,700. At a company tax rate of 30% you get $810 back on its tax in the first year. Now you will be able to deduct the full $18,000. At the new company tax rate of 28.5%, you will get $5,130 back on your tax this year.
And you can do this for as many assets as you want. So you could buy a new vehicle for $18,000, a new computer for $4,300 and a new piece of production equipment for $8,900 – all could be fully depreciated this year.
Before you go on a spending spree we urge you to read our more detailed advice.
Tax Relief for Changing Business Structure
Starting 1 July 2015, your small business will no longer have to pay capital gains tax if you choose to change your legal structure. This is music to our ears. Now established businesses have time to assess their structure and plan for tax minimisation and succession planning without fear of a whopping great capital gains bill.
We urge our clients to take advantage of this once legislation is passed. Come and see us to ensure your structure is appropriate for your business and your family.
Employee Share Schemes.
Currently employees who receive share options have to pay tax right away, even though those options might end up worthless. Naturally this has made employee share schemes untenable for small business.
From 1 July 2015 the legislation is to be changed so that employees only have to pay tax on share options when they realise a benefit by using the options to buy shares.
If you have dismissed an employee share scheme in the past, it is worth reconsidering this as a way to incentivise your staff.
Wage Subsidies Available
Generous subsidies have been proposed to encourage small business to employ the young, old and long term unemployed. Up to $10,000 is proposed for mature age job seekers, or $6,500 for young job seekers. We will report further on the availability of wage subsidies once legislation is finalised.
Deductions for Start Up Costs
Starting 1 July 2015 start ups can immediately deduct all professional expenses associated with setting up the new business, including legal, accounting and consulting fees. Currently some of those costs needed to be deducted over a 5-year period.
FBT Changes on Electronic Devices
Currently the ATO ruling considers a laptop and a tablet to have the same function. That means that if your business provides an employee with both a laptop and a tablet, then one is subject to FBT. From 1 July 2015 this is to change to allow employees to own more than one “electronic device”.
New laws have been proposed to do away with the restrictions and red tape associated with crowd sourced equity funding. Details and a start date are not yet clear. We will provide more information when this is clarified as it may open the doors to crowdfunding as a source of capital for our clients.
GST on Digital Imports
This isn’t exactly a goodie – but your business will need to be aware. Starting 1 July 2015 GST will be applied to digital products and services we buy from overseas. This may apply to some software or other products that you are currently purchasing so take note. You should be able to claim back any GST that you pay.